Are Hospitals Still Focused On Pricing Transparency?

Pricing transparency has been the topic and trend in healthcare for the past few years.  The industry has responded with numerous research articles, solutions and products.  Hospitals have made prices more publicly available, reduced charges and restructured pricing methodology.  However, with pricing transparency being all the buzz, where has that left the focus on costs in healthcare?

Recently, at HFMA’s Annual Conference in Las Vegas, we asked respondents in a random poll: “What is your hospital currently concerned about?”  We found out that more than half (~55%), were currently concerned about costs, while only 20% were currently concerned about pricing.  Obviously the two are always going to be inextricably linked as they both impact profitability. Therefore, you can never be solely focused on pricing without considering the cost and vice versa. However, with all the attention pricing transparency has been getting we were a little surprised about the high concern with costs.

So let’s examine the Hospital Cost Index™ and what changes we have seen across the nation in the last few years.  For trending purposes, we will be looking at two specific metrics that make up the Hospital Cost Index™, Average Cost per Medicare Discharge case mix and wage index adjusted and Average Cost per Visit case mix and wage index adjusted.  The table below presents the 25th, 50th, and 75thquartile from 2014 – 2016 and is derived from public use files.

From the data we can see consistent growth in inpatient costs but virtually no change in outpatient costs. This may result from intense competitive pressure from free standing providers in surgery and imaging.

If you would like know how your hospital has trended give us a call at 888.779.5663.

Data Sample: States With The Lowest Costs

The state of Nevada has continued its ascent to the leading cost position in the nation as it was ranked 6th lowest three years ago, 2nd two years ago, and first in the current national study.  Not surprisingly, the Las Vegas metro area was among the five lowest cost metro areas.  Some might be surprised, though, that two California metro areas lead the way for cost position.  It’s important to note that the HCI is adjusted for cost-of-living, so, this allows for higher cost-of-living areas to be normalized in the study.  Our remaining four states in the top five have all been consistently lower cost in the research.  Interestingly, though, is that three of the five (ND, SD, MT) represent hospitals that are typically smaller and rural which are found to have higher cost positions nationally.  Likely, this relationship stems from smaller, rural hospitals having fixed cost levels that are not balanced against the same levels of patient throughput that larger facilities would have, as well as, competition for labor that might not be fully reflected in the wage index designation.

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Essential Elements of Charge Protection Language

 

The chargemaster, or CDM (charge description master), is an integral component of hospital financial strategy, reimbursement, and the revenue cycle. It is important to understand the complexities of the CDM as well as the consequences of even seemingly simple changes.

Throughout the year, this “menu” of hospital service prices changes to reflect minor adjustments. Larger modifications are typically implemented at least once a year to maintain policy changes and stay competitive in an ever changing healthcare market. While raising prices can appear to lead to higher payments from managed care payers, charge increase limitations are often  negotiated to prevent sizeable payment increases.

The limit percent itself as well as how the payer evaluates the change to charges determines how restrictive a limit will be. Limits can range from a fully restrictive 0 percent upward to as high as 9% in some cases, with a usual average of around 4 to 5 percent. The percent can be defined in the contract, or tied to a published amount – typically some component of the consumer price index (CPI).

An increase to the chargemaster can have a different impact on contract terms depending on how the payer evaluates the charge increase. Though many payers evaluate the overall change to the chargemaster, other methods can be used. A few of the most common are as follows.

  • Overall change to health plan’s patient mix
  • Overall change reported separately for inpatient and outpatient services
  • Overall change reported for services paid a percent of charge

Multiple departments, including managed care, chargemaster, and finance should work together to align financial strategies with knowledge of how managed care contract language plays into the bottom line. It is critical for hospitals to understand how limits are determined, as well as how health plans are evaluating reported charge adjustments. Understanding these components can help hospitals evaluate net revenue impacts that are the result of charge adjustments while remaining in line with financial goals.

 

By Laura Jacobson, RHIA, CSMC

Data Quality and Reimbursement Consultant

Data Sample: States With The Lowest Charges

The effects of Maryland’s all-payer rate regulation, the only of its kind in the nation, are clearly seen in the HCI results where Maryland hospital charges are approximately one-third of the US average.  As rate changes have been heavily limited for the past thirty-plus years, it’s no surprise to see Maryland and the Baltimore metro area as the lowest charge regions in the country.  As we know, payment is the real key in hospital-rate setting and our latest research on charges supports that conclusion.  Smaller rural hospitals, typically with more percentage of charge contracts, have lower charges than larger urban hospitals where more fixed payment levels exist.  We also see high margin hospitals with significantly higher charges than low margin hospitals nationally.

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A response to the FY19 IPPS Proposed Rule (CMS-1694-P) for Requirements for Hospitals to Make Public a List of Their Standard Charges via the Internet

The FY19 IPPS Proposed Rule contains a section for requirements for hospitals to make public a list of their standard charges via the internet. This section of the proposed rule revisits a reminder contained in the FY15 IPPS Proposed Rule and ultimately the initial calls for transparency in the Affordable Care Act (specifically, 2718(e) of the Public Health Service Act). That language required hospitals to “either make public a list of their standard charges (whether that be the chargemaster itself or in another form of their choice) or their policies for allowing the public to view a list of those charges in response to an inquiry.”

It is no surprise that the CMS is attempting to continue this national dialogue as many providers still struggle with how to effectively improve price transparency. In fact, our firm has conducted national provider surveys on how hospitals are approaching price transparency and the areas that tend to receive the most price inquiries from patients. The results of those surveys have been transferred into HFMA-related publications. What we’ve found is that the vast majority of hospitals are complying with the ACA transparency language by providing a means for patients to request pricing information – but not – through public display of pricing information via a website or some other form.

As a result, the FY19 IPPS Proposed Rule indicates that as of January 1, 2019 guidelines will be updated to require hospitals to make prices available via the internet. In addition, the proposed rule requests input on several price transparency definitions, methods, and measures. The purpose of this paper is to provide hospitals with language that can be used to respond to the CMS. We have submitted this as an official comment, however, we believe multiple voices should be heard so we are providing our thoughts as a resource.

Click here to view our full response and learn how you can comment on the proposed rule as well.